News regarding Global Trader Europe Limited (in liquidation)

Distribution for clients: segregated fund clients to receive up to 95 pence in the pound, and the total final dividend for unsecured creditors is estimated to be in the region of 68 pence in the pound.

Today we received Sir Andrew Park's judgment on the claims of clients of Global Trader Europe Limited ("Global").

Smith & Williamson will (subject to any appeal or application) distribute the client money held in the segregated accounts (which it is estimated will result in a return of up to 95 pence in the pound relative to the value of clients' claims as at the time of the liquidator's appointment) and adjudicate on proofs so that they can make a substantial interim distribution to creditors, as a part payment on an overall dividend. It is estimated that the total final dividend to unsecured creditors will be in the region of 68 pence in the pound.

Stephen Cork, head of restructuring and recovery at Smith & Williamson, and Joint Liquidator of Global, said: "We will now be in contact with all creditors who have already submitted a proof of debt. Any creditor who has not yet submitted a proof should do so as soon as possible, as we intend to make payments to creditors within two months from today, subject to any appeals."

The Judge recognised the complexity of the issues raised by clients, and in consequence, his judgment is lengthy and detailed. There were many competing claims made by various different classes of client and creditors; and the judgment is the culmination of the work done by Smith & Williamson to resolve these diverse claims.

Who will be eligible for a distribution from the funds held on the statutory trust?
The Judge decided that the funds which Global held in segregated accounts are to be distributed between the clients whose funds Global had agreed to segregate (according to the documentation on Global's client files) and for whom Global held funds in its segregated accounts as at the close of business on 14 February 2008, the day before Global went into administration, (by reference to the information which the directors of Global provided to the administrators on their appointment on 15 February 2008).

How much?
The distribution to these clients will be by reference to the value of their positions as at 15 February 2008, in accordance with the order made by the Honourable Mr Justice David Richards on 3 October 2008.

The segregated funds are to be increased by an amount equal to profits generated by or crystallised on positions held by this class of client between close of business on 14 February 2008 (when Global carried out its final daily reconciliation before the appointment) and the time at which the administrators were appointed on 15 February 2008.

The Judge held that these clients have no proprietary claim to profits generated by positions which remained open during the administration or liquidation. Consequently, these clients are unsecured creditors of Global in respect of:

a. the shortfall between the value of their positions as at 15 February 2008 and the distribution they receive from the funds standing to the credit of the segregated accounts, and;
b. any increase in the value of positions which remained open at the time of the appointment during the administration and liquidation.

The Judge directed that where a segregated client's position remained open after the time of the appointment, and fell in value between that time and the time at which the position was actually closed, the liquidators can, in reliance on Global's contractual terms and conditions, retain from the sum falling to be distributed to that client from the segregated accounts, the amount of that client's debt to Global.

Unsecured creditors
The Judge rejected claims made on behalf of clients who, in the period before 1 November 2007 (when the Markets in Financial Instruments Directive was implemented in the United Kingdom), Global had classified as Intermediate Customers to a proprietary interest in the funds held in the segregated accounts. In relation to their claims to a proprietary interest in the general funds of Global, the Judge dealt separately with money provided to Global (e.g. by way of margin) and with profits generated on client positions.

Payments to Global
The Judge held that money paid by Intermediate Customers to Global (including by way of margin) in the period before 1 November 2007 was client money and was held on the statutory trust for so long as it remained identifiable, because Global failed to obtain written acknowledgment from customers that money paid to Global would not be segregated from the money of Global and would be used by the company in the course of its own business and that the customer would rank only as a general creditor. However, as Global did not segregate these sums, the funds lost their identity, because they were paid into "active trading accounts of a busy company, and payments in and out of them, often of large sums, were made constantly". Moreover, from time to time, some of Global's general accounts were overdrawn. He concluded that an attempt to "establish a tracing case will be difficult indeed"

On the implementation of MiFID, Global sought to introduce new terms and conditions by sending an email to clients which contained a hyper-link to the new terms and conditions. Not all Intermediate Clients received the correct email. The Judge held that margin payments made by clients who received the correct email and accepted its contents by entering into at least one new trade with Global did not fall to be regarded as client money. Any new money received from clients who did not receive the correct email was client money and held on trust on receipt. However, Global believed that the money was not client money and did not keep it in identifiable existence in a segregated account, with the result that the money would have lost its identity by the time that the company went into administration.

Profits
As to profits, the Judge held that when a client's position was closed and a profit arose, Global owed a contractual debt to the client: the client did not acquire a proprietary interest in the sums unless and until Global paid the money into a segregated account or to the client.

General implications
More generally, the Judgment provides useful guidance on the meaning and application of the FSA's Client Assets Sourcebook.

Click here to download the Global Trader Europe Limited Judgement 24 March 2009

Contact details for Smith & Williamson are as follows:
Stephen Cork
Smith & Williamson
25 Moorgate London
EC2R 6AY
N20 9YU

tel: 020 7131 4000

Please direct any press enquiries to
Kate Harrison / Jess Koslow
Smith & Williamson
25 Moorgate
London
EC2R 6AY
N20 9YU

tel: 020 7131 4228 / 4264

Note to editors
Smith & Williamson is an independent professional and financial services group employing over 1,500 people. The group is a leading provider of investment management, financial advisory and accountancy services to private clients, professional practices and mid-to-large corporates. The group operates from offices in London, Belfast, Birmingham, Bristol, Dublin, Glasgow, Guildford, Maidstone, North London, Salisbury, Southampton, and Worcester.

Smith & Williamson Limited Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International

Disclaimer
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.